Deep tech a substantial venture opportunity: Steve Leonard, SGInnovate

Steve Leonard, Founding CEO, SGInnovate

Steve Leonard, the founding chief executive of SGInnovate, sees the current deep tech focus as a sign of maturation of Singapore’s ecosystem.

SGInnovate concentrates on building the R&D, intellectual property (IP) and other infrastructure elements needed for expanding and deepening the city-state’s venture ecosystem.

In an interview with DEALSTREETASIA, Leonard, the former executive deputy chairman of IDA (now IMDA), discusses the rebranding from IIPL to SGInnovate, what deep tech could mean to venture capitalists and attractive sub-sectors within deep tech.

Edited excerpts:

What led to the rebranding from Infocomm Investments Pte. Ltd. (IIPL) to SGInnovate?

It wasn’t for us a re-branding, it was a complete rebuild. What we wanted to do was to think about how to best support the entrepreneur. When I was at the IDA, a lot of the time we were working with tech companies, with entrepreneurs, and our basic philosophy then was that we can do more if we get closer to the entrepreneur.

We have been thinking about not so much as programmes, but how can we work specifically and directly with entrepreneurs. We made a proposal to the government leaders to take IIPL out of the IDA, then recombine and re-form it as SGInnovate.

The purpose of that was to try and give it a new foundation. Inside IDA, it was very specific — we focused on infocom and infotech — and we wanted to give it a broader mandate to think about things in other areas. So we pulled it out and it went to the National Research Foundation (NRF) because we wanted it to be very close to the front-end of the R&D journey.

The same person that I worked for at IDA, Yong Ying-I, the permanent secretary of the NRF, agreed to be the chairman of SGInnovate. We re-registered the organisation, changed the board of directors and the constitution — so it’s more than a re-brand. It was really a re-boot. 

For the man in the street, what really is deep technology? And how is this space attractive to a VC?

The way I try and think about this is deep tech is technology intensive. I try and insert the word technology-intensive in place of deep tech.

We want to work on things that are difficult to replicate, things that have a high entry barrier. We want to think about things that are building on science and research-based IP.

Those areas are where Singapore has a lot going on. There’s a lot of activity happening at the universities and at A*STAR, and in the corporate labs. But we need to do more to build companies from that. So that is what we are focusing on.

In terms of the VC, it is true that it is a longer horizon. It is less likely that you will make a significant return in AI in the same time frame that you would if you built another great social media platform. It is easy to think if you have ten thousand/a million/ten million/one hundred million users. How does one value artificial intelligence business? Most of the AI companies around the world at the moment are targets for acquisition primarily because of the talent they have acquired. They don’t tend to have lots of products at the moment.

So, the challenge, I would say, for a VC is these are areas that might take a bit longer to come to fruition, but they are also more substantial. With the IP and with the great talent, you are building something more durable than if you build something that is hot and cools off over a very short period of time.

There was a certain app that was sort of like Pokémon where you have pictures of people standing around in a public square. Two weeks later, you never heard of it again. I’m not being disrespectful to them.

When you deal with something like AI and look at how it will change healthcare and transportation, those tend to be more durable.

Last year, the Singapore government put aside S$4.5 billion as part of an economic restructuring package. Is this the capital pool you can draw from?

No. We don’t have access to S$4.5 billion. What we do have is our own investable funds, though we don’t discuss the exact amount publicly. We have Temasek Holdings and GIC on our board. Between them, they have billions. Through them, we have access to their networks.

We have our money and then we have help from our network and our neighbours. What we want to do is be ongoing. Every time there’s a new opportunity we want to try and pounce on it. Whereas once you have spent what you have, you have to wait to get the next investment opportunity.

SGInnovate is exploring AI and machine learning. Tell us more about which areas appear attractive to you?

Our goal is to do things that other people are not currently doing; it’s not to be in a very crowded room. Within AI, there is going to be a variety of things. We think about the vision. So, we think about computer vision and natural language processing. In order for you to relate to a Siri or an Alexa, there is a natural language processing engine. We like those things. We think about images; how does a computer know the difference between something that looks like a tumour and something that is just a blip on the x-ray? How do they help robotics?

We think a little bit more in terms of big challenges. Then we look at the underlying technologies that we have to pursue, among which robotics and AI and some others are important.

We don’t think about them as building the technology and looking for a problem. We think of it like this — there is an ageing population around the world and that has implications on how people are cared for, how they live, and how they move around. That’s not a Singapore problem, that is a global problem. If we are working with global problems, we will have big markets. We completely avoid the whole misunderstanding of Singapore not being a big enough market.

Now VCs are looking much more into sustainable business models because what has happened with all these transport services like Uber, Go-Jek and Grab. In the case of Uber, what we have seen is that they have sacrificed their profits to accelerate the growth of their user base. Now how does this paradigm apply to deep tech?

It doesn’t in that sense. Your point is right, which is, if I want to have a million customers instead of one hundred thousand customers, perhaps I need to run at an economic loss because it is more important to me to have as many people using my system as possible. So logically that is the case.

If WhatsApp wanted to build a model where they charge everybody $0.10 per message, like an SMS would have been, then there would be no point. The whole benefit of WhatsApp is that it is free. So they chose not to monetize in that way and they’ve built a business that is worth billions of dollars and got acquired by Facebook.

From a deep tech perspective, when you are building industrial waste water solutions, computer vision solutions or autonomous vehicles, those are not necessarily things any man, woman, or child, would adopt in scale. Yet, you don’t get millions using something for waste water treatment.

Either build a business that can make money and people use what I am building, or don’t. The idea that an investor will endlessly put money in so you can get another million users makes sense in an advertising-led platform or something that happens in just raw distribution. In our case, that is not the situation.

Heliconia Capital has launched this internationalisation fund, while IPOS and Makara Capital have partnered to launch this S$1 billion intellectual property fund. Will you be collaborating with these funds? 

Sure. I think any smart business person is always happy to try and use other’s people’s money where possible. Because there are these different funds, entrepreneurs that we work with will always try and understand whether those funds offer them something that they can benefit from.

Every investment from these funds comes along with some kind of condition. Whether it is a Singapore fund or a private VC, it doesn’t matter. There is always something that goes with it.  So if you want to have the obligations that come with accepting that money, go take that money. But SGInnovate is always trying to work with people that can help our entrepreneurs.

The most important thing we can do is to ask what we can do to help the entrepreneurs with whom we are working with today. And in some cases, that might mean access to funding that somebody else has. We want to try and help entrepreneurs by getting them access to that money.

There’s this dialogue about the exit architecture in Singapore and in Southeast Asia, as well as how VCs realise the value of their transactions. What’s your take on the current overall state of the exit architecture in Singapore in the South East Asian ecosystem? How does that apply to the context of deep tech?

I think there are two challenges here. Maybe there is more than two but there are two obvious ones we’re dealing with. First, retail investors don’t understand deeply what some of these companies do. If you take a look, you would ask, “Would Deepmind have been a great company to go public or not?”

I mean there is a rule of thumb of discussion. Google realised the value of that and that’s why they acquired them for 400 million pounds, or whatever the final number was.

But if they had said we are going for a listing on the London Stock Exchange, the New York Stock Exchange or the NASDAQ with the retail investor, they would have said, “Oh this is fabulous. I love AI.” I mean it is easier to say I would like to buy shares in Snapchat because people generally understand it. But I think there is a challenge — does the retail investor want to buy shares in a company that they don’t generally understand?

Second, and this is in Singapore and in Southeast Asia more specifically, there are different ways we build investor enthusiasm. In the US, if you go around and say that you have a company that is going to go public and everybody says I can’t wait to buy shares, that’s part of how you drive up the valuation and the demand for its shares.

We don’t really have the mechanism to run around and get people excited about buying shares of an artificial intelligence company. Sometimes what investors will say is you are more likely to have that big bank in another market. To be fair, you would have a hard time naming a lot of Israeli companies that have gone public. Israeli entrepreneurs tend to exit by being acquired, so they build great companies but the exit architecture has been or will be an acquisition by other big firms. Or they go public on US exchanges.

So, this is something we know and we have been discussing with the SGX as to whether there are new things that we ought to be looking at. There is nothing decided, nothing that we are launching or announcing. But I think that the awareness is that we want to better consider the exit for some of these companies. It is on our to-do list.

With IIPL there was a story. With SGInnovate there’s a new story. And stories have substantial power. What do you see as the story of Singapore’s startup scene being in 2030? How will it evolve?

I wish I was smart enough to know which stocks are amazing in 2030 so I could put my money in them. Here’s what I will say: For the next 5 years, I’d say that Singapore doesn’t have the limitations that it thinks it has. We have education, a single layer of government, rule of law, IP transparency, lots of investible capital and a huge number of corporations. How many things are we blessed with?

What we need to do more of is to believe that we deserve no less than a place in the global amazingness scorecard than anyone else, whether it’s Silicon Valley or anyone else. What I’d like to see in the next few years is more people in Singapore believing that they can build something that matters to people around the world.

The only difference between an entrepreneur in Silicon Valley and the one in Singapore is that the one in Silicon Valley believes that they’re going to change the world.

At the end of the day, we want to keep experimenting with new things and we’re not here to tell people how to do it a certain way but to ask what will be helpful to people today and we hope that what we do today will, over time, be helpful and meaningful for entrepreneurs who want to do something from Singapore for a global audience. At the end of the day, our mission statement is to build from Singapore for the rest of the world.

Also Read:

IIPL head Alex Lin on how Singapore came to be a vibrant startup ecosystem

Singapore must build more innovation-driven enterprises:Alex Lin, IIPL

IBM partners Singapore startup FreshTurf to use cloud, blockchain for parcel delivery

We want to be go-to partner for top global startups: George Ugras, IBM Ventures

Startup innovation on a positive growth track in Singapore: IBM Connect panel

Series B gap a pain point in SE Asia from a Silicon Valley perspective: Rakuten

Singapore shouldn’t aim to be Silicon Valley: Anne Marie Droste, Entrepreneur First

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.